Casino’s power plant an $81M gamble? Maria Babbage, Toronto Star Nov 23, 2009

In a story that bears a striking resemblance to a previous story in the Star about vendor management in the e-Health project, Maria Babbage reports that the Ontario Lottery and Gaming Corp. (OLGC) and Buttcon Ltd. have accused each other of mismanagement, incompetence and threats that soured their relationship and sent the costs of the project soaring to twice the project budget.

The project called for the fabrication and implementation of a heating and cooling plant to serve the OLGC’s Caesars Windsor casino in Windsor, Ontario, Canada by the Buttcon Ltd. construction company. The OLGC also claims that the power plant should have had power generation capability and should have been connected to the local power grid so that excess power from the plant could be consumed from the grid. The Statement of Work is once again in dispute but OLGC maintains that the facility was to be built by Buttcon under contract with Buttcon maintaining ownership. A 2008 report pegged the value of the plant that was built at between $21 million to $78 million (CAD).

OLGC believes that it would have to spend more money to get what it believes it paid for. It believes that large portions of the facility would have to be redesigned in order to meet OLGC’s requirements. A forensic accountant hired to examine the results was baffled by how OLGC got the situation. Apparently provisions were not made to factor in the huge amount of electricity that would be required to supply the power needs of the casino which would be excessive due to the large number of neon lights used on the outside of the casino. The accountant, Al Rosen, said "So what went through their brain at that time, not to allow them to factor in one of the huge costs, which would be electricity?”

The project started without a signed agreement, Buttcon built a heating and cooling centre, and OLGC says it wanted an energy centre capable of supplying power to the casino which was connected to the local power grid. The result is a $355 million (CAD) lawsuit launched by Buttcon. The project is part of a $439 million (CAD) expansion of the casino. OLGC realized that they needed a separate energy centre to manage heating, cooling, and "standby electrical needs”. They hired Buttcon to design, build, operate, and own the plant in return for a long-term agreement to supply energy to the casino. The intent was to have Buttcon bear the cost of building the facility and recover their costs from the long-term contract. OLGC reached an agreement to "negotiate exclusively” with a consortium of Buttcon and other firms. It denies that it ever awarded Buttcon a contract.

OLGC is countersuing Buttcon for $60 million (CAD) accusing them of using "underhanded tactics” to force them to pay its bills, including slowing down construction and threatening to disrupt a Celine Dion concert in February this year.

2 years ago Buttcon offered to buy the plant for the cost already put into construction and take on the cost of completion. Buttcon points out that OLGC has no mandate to be in the energy business. Buttcon also contends that construction of the plant was originally "off-book”, a contention denied by OLGC. The provincial minister responsible for the OLGC has refused calls for the provincial auditor to look at the books, saying the truth will come out in court.

The situation as it stands now is: the OLGC has a facility which will heat and cool the expanded casino, but does not have the facility it originally wanted, does not have a facility that will generate the power to run the casino, and does not have a power generation facility connected to the local grid. The construction company has invested its own money in constructing a facility their customer doesn’t want and is trying to recoup its money by suing them.

Cycling through 3 CEOs in the time since the project began certainly contributes to the confusion around the project, but is not the principal cause of the confusion. The lack of a legal contract is also a contributing factor but many projects start before a legal contract is in place; indeed, if every project were made to wait on the contract being signed no project would ever be completed in a timely fashion. Projects are commonly launched with a letter of intent spelling out the details of the agreement that the 2 sides have agreed upon. In this case the completion of the facility would have had to coincide with the completion of the casino expansion.

The news article does not state whether there was a Statement of Work (SOW) to guide this work, but unless the SOW was in Sanskrit I can’t imagine they had one. Part of the reason for saying this is the similarity to the situation between e-Health and IBM in which e-Health engaged with IBM to provide $30 million (CAD) worth of software without an SOW. The gaping chasm between the facility that OLGC ended up with and the one they say they wanted points to a lack of an SOW as well.

How the project was completed without an SOW, or how the two sides could be so far apart in their perceptions of the deliverables of the project and the agreement between them, is a mystery that probably will never be revealed. Here’s my take on how it should have been handled. My take is based on the best practices espoused by the PMBOK and taught in every PMP course, or PMP exam preparation training product I’m familiar with. This is not to say that there were no project managers without this training or expertise involved in this project but obviously the people making the key decisions were not familiar with the best practices of procurement management.

The letter of intent should have contained all the key details of the deliverables of the project, including the requirement for producing power on the local grid. These are details that are essential to the project and should not need to be enshrined in a legal contract. The understanding that the Buttcon consortium would bear the cost of building the facility, would own it, and would recover its costs and make its profit from the sale of power to the casino should also have been in the letter. The letter should have been sufficient to begin the design phase of the project. This should have allowed plenty of time to write the SOW before major money was spent on the build phase of the project. OLGC should have arranged for periodic inspections of the facility so they could reassure themselves that all the deliverables were being built and met all the quality standards established.

The OLGC should have been sufficiently familiar with Buttcon’s project schedule to know when inspections were possible and when the key deliverables of the project were ready for final inspection. Buttcon probably would not be keen to share their entire schedule with OLGC but should have been comfortable sharing a schedule showing the first 2 or 3 levels. Differences between OLGC’s expectations and Buttcon’s project plan should have been caught before they started building the facility.

There are some things that Buttcon could have done to avoid this nasty dispute. In the absence of a letter of intent from OLGC, or SOW, they could have written them themselves and reviewed them with the customer. One of the problems that frequently plague this sort of project is the identification of the customer. Is it the casino manager? Is it the under-secretary to the Finance minister, or some other civil servant? Identifying the person who is the business sponsor for the customer is particularly important when the project must launch without a contract in place. Buttcon should have identified this person and reviewed a letter of intent and SOW with them. Engaging this person and having them spell out how they intended to review project deliverables with them would have avoided the lawsuits.

Scheduling Gate reviews, Business Decision Points, or Phase Exit reviews would also have served to avoid confusion. Obtaining the customers agreement that all the deliverables from the preceding phase have been produced and the plan for the next phase is satisfactory is essential to any project. These meetings won’t avoid all disagreements but are very useful for taking a checkpoint at critical times during the project. The vendor schedules and controls these meetings so could have used them to make sure they were in sync with their customer.

This is another story that demonstrates the pitfalls of performing projects without the appropriate practices in place. You don’t have to be managing a multi-million dollar project in order to fall victim to the same problems that plague this arrangement; these mistakes are scalable. The PMBOK sets out the best practices for procurement management very well. If you’ve received your PMP certification and use these best practices in your projects, give yourself a pat on the back. If you haven’t taken this step yet, investigate the certification process and identify the PMP course or other form of PMP exam preparation training that best suits you.